France's Hollande Offers Business Tax Relief In Charm Offensive

by
Reuters
President Francois Hollande unveiled new reductions on capital gains taxes from the sale of small companies on Monday, a measure aimed at appeasing entrepreneurs who say high taxes are a disincentive to starting businesses in France.

* Entrepreneurs get bigger deductions when firms sold

* Earlier tax hikes have weighed on business confidence

President Francois Hollande unveiled new reductions on capital gains taxes from the sale of small companies on Monday, a measure aimed at appeasing entrepreneurs who say high taxes are a disincentive to starting businesses in France.

Hollande launched the deductions as part of a charm offensive to win back business owners' confidence and help revive faltering economic growth, which the government hopes will reach a miserly 0.1 percent this year.

"When an entrepreneur sells what is dearest to him, what he created, there should be fair tax treatment for developing, building and creating wealth," Hollande told a crowd of business people at the presidential palace.

The Socialist leader, France's first president to have attended business school, has had a rocky relationship with corporate France during his first year in office.

Tax hikes on companies early in his mandate, and occasional anti-business rhetoric from some ministers, have left many entrepreneurs frustrated with the government as they struggle with difficult market conditions.

Hollande said business owners would be able to deduct up to 65 percent of their capital gains when they sell firms that they have owned for at least eight years, up from 40 percent now.

Rates would be lower for firms owned for less time, and the deduction could reach up to 85 percent when a business is being passed on within a family, or its owner is retiring.

Among other measures, visas would be granted more easily to foreign entrepreneurs looking to set up in France and bosses of failed firms will not be put on a national blacklist.

CHANGE OF TONE

A heftier tax burden and weak consumer demand in the face of record unemployment have helped drive business confidence down to levels not seen since the 2008-2009 financial crisis.

With the economy on the brink of its third recession since the crisis, Hollande needs business owners to help revive the euro zone's second-biggest economy.

High taxes and social charges have shrunk profit margins of French companies to the slimmest in Europe, leaving more of them dependent on external financing - an effect which has, in turn, pushed corporate debts to record levels.

Eager to cut a budget deficit and restore fiscal credibility with EU partners, Hollande's government hiked taxes on wealthy households and companies by 20 billion euros in its 2013 budget.

But within days of unveiling the budget in October, the government was forced to back down on plans to increase capital gains tax on business owners who sell their firms after entrepreneurs staged a high-profile protest.

Hollande, who blamed the episode on "misunderstandings", said he aimed to dispel business owners' concerns about being clobbered with taxes when they sell out of their firms.

He has also had to scrap plans for a 75 percent tax on people earning over a million euros, a high-profile campaign pledge, after a constitutional court ruled it confiscatory.

Meanwhile, companies have given an unenthusiastic welcome to a tax credit scheme that Hollande's government hoped would make them more competitive on international markets.